RETAIL: Not only does Mohammed Al Fayed plan to open in Chicago, he is also considering a partial float of the business. Suzanne Voyle and Charles Pretzlik report.

Mohammed Al Fayed is looking west. The wealthy owner of Harrods has big plans for the development of the Knightsbridge department store this year in the US.

Not only is he involved in talks to open a branch of Harrods in Chicago but last week it emerged that he is considering a partial float of the business in the US.

The float plans will be closely watched on both sides of the Atlantic. Harrods is a prestigious international brand with great potential for expansion. As a retail business it would spark huge levels of interest from trade and financial buyers if Mr Al Fayed were ever persuaded to sell rather than float.

However, Mr Al Fayed's plans have also prompted speculation about the current state of trade at Harrods and the health of his complex business empire - which also includes Fulham Football Club and The Paris Ritz.

For more than a year there have been rumours about poor trading at Harrods. Mr Al Fayed played down those reports last week.

He said the big fall in US tourists in the wake of the September 11th attacks had hit the business in the short term but there had been a sharp pick-up in sales in recent weeks and the January sale had been stronger than last year.

Whatever the state of trade at Harrods, profits are bound to have been hit by last year's move to remortgage the store. The 20-year deal, underwritten by Royal Bank of Scotland, is understood to have raised £350 million sterling (€568 million).

Since the deal Mr Al Fayed has repeatedly insisted that the arrangement was not a sign of money troubles but that the cash was for expansion. However, the group has since had to service the debt.

"He has been stuck with a big increase in his cash cost base and a big reduction in his cash inflow," said one rival retailer. "He could really be hurting at the moment."

Mr Al Fayed has considered an initial public offering of Harrods before. In 1996 he explored the possibility of a London and New York listing after talks with investment banks, including Salomon Brothers and Cazenove, but decided not to proceed.

Analysts then estimated the business could be valued at more than £2 billion and Mr Al Fayed and his brothers planned to sell up to 20 per cent of the business. Investment bankers who spoke to Harrods at the time said he did not like the idea of easing back from the business.

According to one, Mr Al Fayed was advised that he would need to make the board more independent and, in particular, would need a highly credible chairman. He was also told he would need to distance himself from the day-to-day management.

With the defection of several key aides in the past few months, the strength of senior management will be an issue of keen interest for investors this time round.

"When we said that it didn't go down very well. And that was the end of our involvement with the company," said the adviser from a US firm.

Drawing up his current plans, Mr Al Fayed is understood to remain keen to retain control, and is looking to Estée Lauder as a model. The US cosmetics group is publicly quoted with class A and class B shares. This allows the Lauder family to retain 91 per cent of the voting rights with 54 per cent of the stock.

Whatever Mr Al Fayed's eventual plans, investors are bound to look at his record - and this will not be the first time he has floated a business.

He and his two brothers took control of Harrods in 1985 under the £615 million deal to buy House of Fraser - after a long battle with Lonrho, the trading group headed by Tiny Rowland.

Nine years later Mr Al Fayed kept Harrods and floated the other stores in the portfolio, bringing House of Fraser back to market.

The experience was not a happy one for investors. The group - which includes Dickens & Jones, Army & Navy and Binns - was valued at £413.3 million or 180p a share. The float attracted a large number of private investors.

But the group was burdened with about £100 million of debt, badly controlled stock surpluses and a series of stores, stretching from Scotland to southern England, which had suffered years of under-investment. The Fayeds had lavished all the care and attention on their much-loved Knightsbridge flagship store.

Margins were under pressure from the start and House of Fraser quickly suffered a series of profits downgrades and closures. By autumn 1995, the group had seen its profits forecasts downgraded four times in less than two years.

A profits warning in January the following year was the final straw, and led to a management shake- up. More than two years after the float the group was still miles behind its rivals in terms of sales per square foot and gross margins.

Analysts say the group suffered from the after effects of its turbulent flotation for years.

"You could say that it remains one of the reasons it is still suffering now in terms of investor sentiment," said one. - (Financial Times Service)